Tennessee now has the highest sales tax in the nation, although it’s not as a result of anything new that state lawmakers did.
Rather, the dubious honor is by default, now that Louisiana’s rate has been decreased. Louisiana’s 5 percent statewide rate was reduced to 4.45 percent as of July 1, 2018, after lawmakers extended just a portion of an expiring 1 percent sales tax increase. This change put Louisiana at 9.45 percent for total local/state combined rate, which is just below Tennessee’s 9.46 percent.
While lawmakers didn’t make any new sales tax moves, there was a transit plan proposal in Nashville that would have included a 1 percent sales tax hike in order to help fund a multibillion-dollar transit package. Opponents campaigned hard against it, noting that Nashville would have had the highest sales tax rate in the country if it went through.
Here’s how Tennessee ranks across the board, according to the Tax Foundation:
State tax rate: 7 percent
State tax rank: 2
Average local tax rate: 2.46 percent
Combined state/local rate: 9.46 percent
Combined state/local rank: 1
Max local tax rate: 2.75 percent
“Sales taxes are just one part of an overall tax structure and should be considered in context,” the Tax Foundation study authors wrote. “For example, Tennessee has high sales taxes but no wage income tax, whereas Oregon has no sales tax but high income taxes. While many factors influence business location and investment decisions, sales taxes are something within policymakers’ control that can have immediate impacts.”
But overall, Tennessee remains one of the nation’s lowest-taxed states, cautioned Jim Brown, NFIB State Director.
For example, Tennessee leads the nation in its low top marginal income tax rate, according to the 2018 edition of Rich States, Poor States.
“It’s important to remember that maintaining a low-tax state and positive business climate requires balance and tradeoffs across the tax system,” Brown says. “Lawmakers have reduced the sales tax on food the last few years. Overall Tennessee is one of the best states for small business owners to hang their shingle.”
